Key takeaways:
- Home Depot’s second-quarter sales rose 5.7% to $47.9 billion as customers continued to engage in smaller repair and maintenance projects.
- Thirteen of the company’s 16 merchandising departments posted positive comparable sales and Pro outperformed DIY for the quarter.
- The company reaffirmed its fiscal 2026 guidance and said gross margin is expected to land close to flat year over year in the fourth quarter.
The Home Depot beat its own expectations in the second quarter, with executives crediting broad-based demand for smaller home improvement projects even as bigger, discretionary renovations stayed under pressure.
The results arrived days after CEO Ted Decker began a temporary medical leave of absence, leaving EVP and CFO Richard McPhail and Senior EVP Ann-Marie Campbell to lead the earnings call in his place. EVP of Merchandising Billy Bastek also joined the pair on the call.
Sales for the quarter rose 5.7% to $47.9 billion, with comparable sales up 1.7% companywide and 1.3% in the U.S. Results built as the quarter progressed, climbing from 1.2% in May to 1.5% in June and 2.3% in July, McPhail said on the call, with U.S. comps following a similar arc, from 0.5% in May to 1.2% in June and 2.2% in July. He added that the U.S. northern and western divisions both posted positive comps, along with Mexico and Canada.
“The headline here for us this quarter is that our teams took share in a difficult environment. We’re confident the investments that we’ve made are positioning us like no one else in the market,” McPhail said on the call.
Net earnings for the quarter were $4.8 billion, or $4.79 per diluted share, up from $4.6 billion, or $4.58 per diluted share, a year earlier. Adjusted diluted earnings per share rose to $4.92 from $4.68. Gross margin increased approximately 25 basis points to 33.7%, helped largely by tariff refunds that offset rising fuel, energy and other input costs, partially offset by a mix shift tied to the GMS and Mingledorff’s acquisitions.
Tariff Refunds Cushion the Margin
Home Depot received $730 million in tariff refunds during the quarter, arriving around the end of June, McPhail said. That figure represents the vast majority of what the company expects to receive under the IEEPA refunds it filed for, with only an immaterial amount potentially still coming in the back half of the year.
Of that total, $685 million reduced cost of goods sold in the second quarter because it applied to products that had already been sold. The remaining $45 million stayed in inventory and will hit the P&L as that inventory turns over later in the year.
McPhail said the refunds are being used to offset unplanned, rising cost pressure that emerged after the company built its original fiscal 2026 plan, rather than dropping to the bottom line as additional margin. Bastek pointed to incremental commodity costs, including resin and metals, along with a tariff change in which Section 101 tariffs, updated in February, expired in July and were replaced by Section 301 tariffs, as pressures the company had not built into its original outlook for the year.
Because the refunds were booked as cash was received, McPhail said the timing will create a shift between the second and third quarters, with the offsetting benefit concentrated in that window. He said the company expects gross margin to be roughly flat year over year by the fourth quarter, and does not expect a lapping issue at the annual level heading into fiscal 2027, since the refund benefit and the cost pressure it is offsetting are expected to roughly net out for the full year.
Pro Outperforms DIY
Thirteen of Home Depot’s 16 merchandising departments posted positive comparable sales in the quarter, including storage, electrical, hardware, power, plumbing, indoor garden, kitchen, paint, bath, outdoor garden, building materials, flooring and millwork, Bastek said. Only three of the top 20 businesses that drove positive performance across the store were seasonal categories, he noted, pointing to broader strength in the middle of the store rather than a weather-driven quarter.
Pro posted positive comparable sales and outperformed DIY for the quarter. Pro refers to Home Depot’s professional customers, such as contractors, tradespeople, home builders and property managers, as distinct from individual do-it-yourself, or DIY, shoppers.
On the DIY side, Home Depot saw strength in live goods, mulch, soils, hardscapes, storage, patio and grills. Pro-heavy categories that performed well included portable power, decking, dimensional lumber, pipe and fittings, fasteners, hand tools and concrete.
Comp average ticket increased 2.8% for the quarter while comp transactions decreased 1%. Big-ticket comparable transactions, those over $1,000, were positive 2.4% compared with the second quarter of last year. Bastek attributed the ticket gain to a mix of higher average unit retail on some cost-driven categories, single large-item purchases such as refrigeration, portable power and patio, and customers trading up within categories.
“It starts with the right product on the shelf in the quantities and specification the customer wants, and we have been on this journey to improve our on-shelf availability, and it remains at record levels,” Campbell said on the call, crediting the breadth of category strength to that operational focus.
Demand Stays Uneven by Project Size
Consumer uncertainty and housing affordability continued to pressure demand for larger home improvement projects, McPhail said, while smaller repair and maintenance work stayed resilient by comparison.
Housing turnover has remained near historical lows for four years, he added, with no clear sign yet of an inflection point. Turnover has historically bounced back quickly once it approaches roughly 3% of the housing stock, he noted, but the market hasn’t gotten there.
Magic Apron AI Gains Traction
Home Depot continued to expand Magic Apron, its AI-powered shopping assistant, during the quarter. Campbell said the tool is now available to store associates in addition to customers, helping shoppers navigate stores, find products within seconds and ask questions about products and projects.
EVP of Interconnected Retail Jordan Broggi said Magic Apron is fielding millions of customer questions per month and has continued to grow. The company is now rolling out a more localized version of the tool that understands store-level context, he said, including which products are in stock at the store a customer is shopping in, so it can tailor its answers accordingly.
Digital Sales and Faster Delivery
Online comparable sales rose 11% in the quarter, the fifth consecutive quarter of double-digit online growth. Over 65% of the company’s parcel deliveries are now same-day or next-day.
Home Depot has cut delivery lead times by approximately 45% in the U.S. over the past 18 months, with about 55% of big and bulky deliveries now arriving within two days, Bastek said. The company also launched nationwide express delivery this month, offering delivery in three hours or less on tens of thousands of products for a flat fee, with the majority of those orders arriving in under an hour, Broggi said.
Guidance Holds Steady for the Year
Home Depot reaffirmed its fiscal 2026 guidance, which includes IEEPA tariff refunds expected to partially offset unplanned fuel, energy and other input costs throughout the fiscal year.
The guidance calls for total sales growth of approximately 2.5% to 4.5%, comparable sales growth of approximately flat to 2%, roughly 15 new stores and gross margin of approximately 33.1%. The company expects diluted earnings per share and adjusted diluted earnings per share to both grow approximately flat to 4% from fiscal 2025’s $14.23 and $14.69, respectively.
Third Quarter Off to a Similar Start
The start of the third quarter has tracked consistent with second-quarter demand, McPhail said, though he cautioned that unplanned cost pressure and a housing market he described as frozen remain in place.
